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Better Together

Retirement Funding Tax Planning

Put your 401(k) account and Health Savings Account (HSA) benefits to work for you.

Nearly every retirement article you read suggests that you should contribute every penny you can spare into your 401(k). Generally speaking, that’s pretty good advice. However, if you have access to a Health Savings Account (HSA), you may want to rethink that advice. We will first outline the features of a traditional 401(k) a Roth 401(k) and an HSA.

 A Health Savings Account (HSA) combines high deductible health insurance with a tax-favored savings account. Money in the account can help pay the deductible. Participants in investing in an HSA, enjoy several benefits including a triple tax advantage;

 1) Contributions are made pre-tax or are tax-deductible

2) Earnings and interests accumulate tax-free and

3) Withdrawals for qualified medical expenses are also non-taxed.

401k plan is a tax-advantaged retirement plan. Most people open up the plans through their current employers. With a 401k, your money can grow tax-free. By contributing, you can lower your tax burden up front, and you won’t have to pay taxes on the money in the account until you withdraw it in retirement. Workers age 50 and older can benefit from catch up contributions for a total of $25,000 for the 2019 tax year. Many employers offer matching programs where they’ll contribute a certain dollar amount or percentage for every dollar you put in too.

As the tax advantages of HSAs are becoming more realized, enrollees are increasingly using these advantages to support the retirement savings. For those 65 and older, you can withdraw funds to pay for non-medical related expenses, penalty free. With that said, taxes may still be applicable like Traditional IRAs but you will avoid a 20% penalty from the IRS. A common misconception is that Medicare will cover all of the costs but in reality it will only cover about 65% of incurred expenses and you will be responsible for the rest of 35% out-of-pocket payments.


HSA: Payroll deductions

Pre‐tax savings




401(k):Pre‐tax contributions

Pre‐tax contributions up to the annual limit



 We can help you better understand the long-term savings an HSA can offer in helping to pay for uncovered expenses in retirement and offer strategies to align your HSA with your 401(k).

 Baird does not offer tax advice.  Please consult with your tax professional.